Transcript
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Tell me about how you build your mastermind of
peers and how you get better as an LP by
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knowing other LPs.
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You mentioned your CIO, Doug.
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What's his superpower, and what's allowed him
to perform at a high level for so many decades?
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First, the superpower, I think of him as a a
renaissance man.
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He does everything well all at the same time
and in a modest fashion.
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You wouldn't know it from talking to him, but
both in his personal pursuits as well as his
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professional pursuits, he has a measured and
thoughtful and incisive approach to our
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portfolio, but also everything else that goes
along with it in terms of monitoring markets
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and sources of information and communicating
with stakeholders and really intimately knowing
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different areas of the university and how they
are related to the efforts that we're
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undertaking on a day to day basis.
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Rob, I've been excited to chat since our
friend, Jeff Smith, from the Smithsonian
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Institute introduced us.
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Welcome to Nutanix Capital Podcast.
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Thanks very much.
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Really excited to be here.
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Grateful for Jeff's introduction.
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Excited to have you.
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So tell me about the University of Rochester
strategy.
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The university was fortunate to get a
relatively early start in the endowment
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business due to George Eastman's success with
inventing photography here, founding Kodak,
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generous donations to the university about a
100 years ago.
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So this made us one of the top five endowments
in the country in the mid 1900s.
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We're a division 3 school with a smaller alumni
base than the Ivy League and other
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institutions.
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So we have not remained among the largest, but
we're still punching above our weight in the
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top 50, thanks mainly to the generosity of
donors who have followed Eastman's example.
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We have around 3 and a half $1,000,000,000 in
the endowment today and a team of 10 in the
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investment office.
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I'm one of 4 generalist investment officers,
plus 1 analyst, 1 intern, great team of 4 in
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the operations side that work with our CIO,
Doug Phillips.
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On the investment side, we each have
responsibility for sourcing and monitoring
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managers across asset classes.
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And, we're fortunate to have some highly
experienced members with significant tenure on
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our investment committee, along with some
engaged and insightful newcomers of our great
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supporters of the university.
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At a top level, our strategy is to maintain a
relatively concentrated portfolio of the
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highest quality managers across asset classes
and geographies.
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Our top ten is over 40% of the portfolio and
over 80% of our portfolios in our top forty.
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We've managed to perform well over most
periods, generally capturing around 2 thirds of
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the upside of the MSCI All Country World Index,
our benchmark on the equity side, while only
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taking about half of the downside.
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Compared to your peers, you have a very
concentrated strategy.
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What's the rationale behind your highly
concentrated strategy?
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Both access and focus and being a small team.
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We do travel the world, but we know we can't
cover all the, opportunities in every asset
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class and every geography and new themes and
strategies.
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So, being concentrated enables us to find the
best and brightest in the different categories
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to create a diversified portfolio while still
having meaningful positions as well as
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relationships.
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And with 4 of us, investment officers with
primary responsibility for relationships, if we
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had 200 line items, that would be less
meaningful interaction than our 40 to 50 active
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line items, as well as again, trying to make
each impactful to the portfolio.
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So those are the main reasons for the
concentration.
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What are the pros and cons of using a
generalist strategy?
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Well, one main benefit is that we actively
source and evaluate managers across all asset
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classes and geographies.
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Each of us do that.
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So we have a good understanding of our entire
portfolio and what the best compliments could
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be to the existing manager group globally,
regardless of category.
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So this brings more voices and perspectives
into the room when we're evaluating the
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portfolio and hopefully leads to better
decision making.
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You manage 3 and a half billion at University
of Rochester.
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Tell me about your top level portfolio
construction.
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Sure.
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Well, when I joined in 2013, we were in the low
fifties percent range in alternative assets as
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a whole.
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That's increased slightly to the upper fifties
percent range now, partly from appreciation, as
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well as a number of additional manager
allocations since then.
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Included in that almost 60% number is about 30%
in private equity, split between buyouts and
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venture with a bid in distress and credit, and
then a hedge fund allocation of about 25, 27%
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or so with about 2 thirds of that in
diversifying strategies of different kinds and
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1 third in long short equity hedge funds.
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And then besides that, 55, 60%, we have about 8
to 10% in fixed income and cash and most of the
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remaining 3rd or so in long only equities
globally.
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And these are reviewed every fall when we meet
with our investment committee to plan for the
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coming year.
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What are you discussing when you decide whether
you want to update your portfolio construction?
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A number of things.
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So over the summer, we always reconnect with a
number of different stakeholders around the
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university, investment committee members, of
course, but also deans in various schools, the
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finance team with the university and other
stakeholders.
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We take their input.
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We are of course doing our ongoing top down
research on market themes and trends, and then
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our bottom up view of the opportunity set in
managers, both in our own portfolio as well as
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those that we're tracking that we think might
be a good confluence to the portfolio.
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We triangulate all that information and have a
conversation with the committee and are
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generally only making gradual changes each year
to each asset class.
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When it comes to looking at re upping in your
managers, what qualitative and quantitative
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factors are you considering when making those
decisions?
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One way we think about new allocations is top
down.
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So we're looking for something specific and the
managers specializing in that area.
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One of my favorite aspects of our role is
market mapping, where we seek to identify as
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many opportunities as possible within a
specific country or a sub sector like biotech.
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And then we generally, we have a couple of
those going on at any one time and really dive
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deep in that area of our portfolio, as well as
the opportunity set.
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And then another way is bottom up, where we'll
get referred to a manager through a committee
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member or peer endowments or another source, or
come across them ourselves from our research
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and then just get to know them 1 on 1 over
time.
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Then either way, the initial screen is to try
to find an exposure that we don't have it yet
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in our portfolio that we are actively seeking
and evaluate the best managers of that strategy
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or something in the area that we already have,
but in a different approach or focus that
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complements our existing exposures there, like
a new type of diversifying hedge fund that we
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don't have yet or a lower mid market buyout
manager to complement the larger ones that we
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have.
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And how much does University of Rochester look
at macro factors when finalizing allocations
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for the next year?
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It's tempting to say not at all, since we are
aware of our lack of ability to predict the
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future for markets or asset classes.
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And we wanna maintain a broadly diversified
portfolio to minimize draw downs while
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delivering sufficient return to meet the
university spending needs.
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However, each part of the portfolio does rest
on the belief that we will be rewarded in the
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future for exposures in that category, whether
it's an industry or geography or strategy.
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Some of our allocations do come up from a
bottom up conviction in the talent of an
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individual manager and the organization they
have built, such as our own Rochester alum,
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Paul Singer at Elliot.
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And that sort of allocation doesn't rely on any
future prognostication, but some allocations do
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arise from the belief that future
outperformance is coming from an industry like
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technology or healthcare or a geography or
region like India or Asia.
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So we do do some prognostication, after
triangulating information from research sources
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I mentioned earlier, our own stakeholders,
peers we trade notes with, podcasts like this
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one of course, and then develop views on the
potential of investments in that way.
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When we last chatted you said that you're not
really active in real assets or fixed income.
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Why is that?
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We are becoming a little bit more active in
fixed income now since there do seem to be more
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opportunities for alpha there than there have
been in recent years with rates higher and
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other volatility drivers.
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Even if the Fed lowers rates as much and as
quickly as the market thinks that they will,
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which I don't personally think will happen,
there will continue to be interesting
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opportunities in fixed income.
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But we believe that equity related strategies
will continue to deliver higher returns over
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the long term compared to fixed income.
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It's definitely useful for liquidity to have a
reasonable amount of fixed income in the
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portfolio.
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So it definitely has its place.
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What about real estate?
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Is real estate an inferior assets for non
taxable investors like University of Rochester?
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I certainly can't say it's inferior, but just
it's it's our strategy where we used to have an
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active real assets program, private investments
in energy focused funds and real estate focused
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funds.
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But on a relative basis, those areas
consistently underperformed our portfolio of
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venture and bio funds so that we gradually
refocused our efforts onto private equity for
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the marginal illiquid dollar.
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Tell me about your venture portfolio.
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Sure, we have a concentrated program as we
talked about before within private equity
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overall, with just a few long term
relationships holding most of the assets in
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that portfolio for us.
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We try to capture as much of the opportunity
set as we can with a few line items, keeping
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the manager numbers to a minimum and staying
within our liquidity constraints.
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Within venture, it's about 90% Sequoia for us
and 10% opportunistic compliments that we've
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found every few years.
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And I would expect that will continue, meaning
we'll continue investing with Sequoia as well
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as continue our efforts to find interesting
complementary exposures every so often.
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You've gotten into the most difficult to
access, arguably, venture fund in the world.
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How have you built that relationship and how do
you retain access?
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Well, initial credit certainly to our CIO, Doug
Phillips.
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One of the first things he did when he joined
here in 2000 was develop some of the
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relationships that we maintain today, Sequoia
being among the first.
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And then since then consistently investing with
them across their platform and across cycles
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and then remaining engaged with all geographic
and strategic areas of their firm, acting as a
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value added partner, making some introductions
as appropriate to areas of our university, for
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example, certainly maintaining confidentiality.
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And then importantly, our fortunate position as
a university that has a leading medical center,
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music school, business school, engineering
school, so much more.
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And they're very mindful of where the profits
that they generate are going, which really
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helps us in that sense.
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So we're far from being among their largest
LPs, but we seek to maintain a mutually
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productive relationship.
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Mentioned that your CIO built that relationship
in 2,000.
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What's the best practice as it comes to
building relationships with top GPs?
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Try to be mutually productive.
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You know, be mindful of what they're trying to
accomplish.
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And to the extent it's in your power, help them
do that, whether it's not overburdening them
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with inquiries, but maintaining communication
and connectivity to your own special sauce.
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So in our case, again, we have a world leading
medical center and business school and other
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areas And to the extent their portfolio might
benefit from connections there, we do that.
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We try to give them any insights that we have.
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There aren't many that we have that they don't,
but, anytime we can offer those, we do that.
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And then continue communicating to them what
sets us apart to make sure that they're aware
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that their efforts are going towards the great
causes that we support and develop ourselves.
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You guys are extremely selective when it comes
to new managers.
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What do you look for in new managers?
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I would say top down and bottom up.
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So top down, we're looking for something
specific sometimes, whether it's a geography or
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industry that we feel optimistic about based on
our research and also see is not as well
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represented in our portfolio yet.
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Again, back to the market mapping exercise
where we'll say we don't have any biotech
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exposure, let's get to know every biotech
manager across private to public and compare
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and contrast and see if any of them, are a fit,
in our particular portfolio.
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And then there's certainly the bottom up where
we'll get referred to a manager through an
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investment committee member or a peer endowment
or foundation or some other part of our
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research, just 1 on 1 get to know them over
time.
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So it's about the fit in our portfolio and then
of course we do the usual steps of diligence
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once the potential top down fit is established.
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So what are some of your pet peeves for
emerging managers?
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I think I might be an outlier here a bit since
I hear a lot of people want punchy, high level,
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short summary information, as an introduction.
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But for me, I prefer to get all relevant
information in the introduction so I can better
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evaluate the potential fit and save both of us
time in case I can discern an issue that
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wouldn't work for us.
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The backgrounds of the team, their connectivity
to strategy they're trying to execute, why they
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are right for this particular time and place in
the industry that they're targeting,
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competitive landscape, edge, as much detail as
possible is helpful for me to screen.
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So the pet peeve is sending one high level
paragraph, maybe a 1 pager to go with it and
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saying, hey, can we have a hour long
conversation?
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And again, we learn a lot from every
conversation we have, it is a privilege to
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speak with these experts in their craft, It's
not at all a waste of time, but the math
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doesn't work to have discussions with
everybody.
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So for me, more information upfront is is
always helpful.
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bring in the very highest quality guests and to
produce the very highest quality content.
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Thank you for your support.
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Do you think there's a bias against strategies
and asset classes where you can't explain it,
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you know, standing on one foot?
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And do you think that there's an inverse
relationship between the simplicity of a
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strategy and its ability to produce alpha?
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I think 2 different questions there.
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I don't know that there's a upfront bias, but
people find their own ways to do their jobs
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most efficiently.
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So it is certainly an uphill battle to try to
educate someone like me that doesn't understand
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the strategy as well as the other more
commonplace strategies that generally find
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themselves into a portfolio.
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So it's certainly more challenging and I've
experienced that, kind of on both sides of that
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equation to explain the fit in the portfolio
and the value.
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I would say on the other hand, there are a lot
of people in our seat on the LP side actively
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searching for strategies like that.
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By definition, following the crowd, you're
going to perform like the crowd.
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So, a lot of us actively seek out those
strategies that might be a little bit harder to
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explain, but have alpha potential that many
others might not.
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You mentioned your job is reading, writing and
relationships.
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Can you break that down for me?
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Sure.
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Well, reading first, make sure we're up on
current opportunity sets and including them
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into our portfolio.
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There's the required reading that our managers
and letters and reports and all that, of
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course.
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And then we try to source interesting and
differentiated additional sources of
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information, whether from our managers or
research services, news reports, conversations
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with peers, your podcasts, of course.
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So reading's a big part of the job.
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And then writing to report on our existing
portfolio and the changes that we're planning
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to the stakeholders around the university, of
course, the investment committee, also any
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others that aren't involved in or affected by
our results.
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Clear and concise writing is a skill that will
outlast GPT 4 or 5 or whatever it is.
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And then relationships, a key aspect of
sourcing new opportunities, evaluating and
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maintaining them, as well as our relationship
with stakeholders and peers and across the
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industry in general.
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So relationships are very key as well.
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To me, those are the three pillars of success.
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I know, you know, several of our previous
guests.
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Tell me about how you build your mastermind of
peers and how you get better as an LP by
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knowing other LPs.
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Oh, yeah.
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And how much time do we have here for this?
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I'm really lucky, to have a number of mentors.
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For example, CIOs, Doug Phillips here at
Rochester, of course, being the most
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influential for me.
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It's been amazing to spend over a decade with
him and the team here, so far, and learning
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from other great investors through the years.
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When we meet them, we have separate 1 on ones
or we'll see each other in the halls at a
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conference room.
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Some of them are very generous with their time
and expertise like Ken Miranda, Cornell and Tom
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Linehan at Wallace, Stefan Strine at Cleveland
Clinic and Carl Shear at Cincinnati and so many
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others I can name, that I'd love to, but and
then some who aren't CIOs yet, but who are will
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be and, some of my closest friends, like you
mentioned that the 2 that connected me to your
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podcast definitely must listen episodes.
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Jeff Smith from Smithsonian, as you mentioned,
also Harish Shehay from Northwestern, you did
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such a great job on here, describing the unique
parts of their program.
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And then of course my wonderful colleagues,
Richard Silaco and Steve Groves and Claudio
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Rossello and Ryan Kirchhoff and our operations
team, they're also out there in markets
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learning things, interactions around the office
are both fun and meaningful.
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Then we'll get into, IDI as well, hopefully,
too.
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Our cofounder Stephanie Weston and Sophia Tsai
and Patheemerchendani have been so
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energetically passionate in that effort.
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You mentioned your CIO, Doug.
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What's his superpower and what's allowed him to
perform at a high level for so many decades?
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First, the superpower, I I think of him as a a
renaissance man.
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So, I don't know if he'll he'll hear this and
it's like kissing up to the boss, but, he does
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everything well all at the same time and in a
modest fashion.
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You wouldn't know it from talking to him but
both in his personal pursuits as well as his
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professional pursuits, he has a measured and
thoughtful and incisive approach to our
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portfolio, but also everything else that goes
along with it in terms of monitoring markets
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and sources of information and communicating
with stakeholders and really intimately knowing
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different areas of the university and how they
are related to the efforts that we're
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undertaking on a day to day basis.
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And then is so intellectually curious in other
parts of his life as well.
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He's an accomplished athlete across a number of
different sports and he will know interesting
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stories about any topic that you'll be able to
bring up over dinner.
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So it's a I think it's the zest for life and
continuous learning and measured approach.
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Renaissance man.
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You've been at University of Rochester for over
11 years.
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What makes you so excited to invest
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out of the seat?
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I'd say Rochester being really closest to my
heart transplant in Rochester and didn't grow
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up here, but my wife did and my kids are.
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And this university is just an amazing place to
be a part of.
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It's also a renaissance person in its own
right.
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We have a world leading medical center, music
school, Eastman that's right there with
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Julliard and the other world leading schools, a
business program, you know, similarly well
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situated, engineering, the Hagem School, Optics
was developed here in ways that unparalleled
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globally.
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So there's so many exceptional programs here.
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And then when we're trying to support all of
these different efforts, the privilege of
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00:18:55,880 --> 00:19:01,144
working here and getting to know the
opportunity set globally and applying it to all
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00:19:01,144 --> 00:19:03,304
these ways that the university makes the world
better.
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00:19:03,304 --> 00:19:06,505
We're privileged to come to work here every day
and partner with each other and partner with
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our external managers and benefit current and
future generations of students, faculty, staff
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and other stakeholders here.
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So it's just a joy to be a part of.
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00:19:15,440 --> 00:19:16,900
You're co founder of IADEI.
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Tell me about the organization that you co
founded.
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00:19:20,400 --> 00:19:20,720
Sure.
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00:19:20,960 --> 00:19:26,575
That came about in in 2020, in response to a
call to action across our university from our
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00:19:26,575 --> 00:19:30,815
president Sarah Mangelsdorf after George
Floyd's murder and the resulting upheaval in
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00:19:30,815 --> 00:19:34,015
society and we all looked internally to see
what we could do better.
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Long story short, in our area, we looked at our
portfolio and how we source and evaluate
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00:19:38,335 --> 00:19:42,930
opportunities to see how we could do it better,
what else we can include that made sense.
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Partnered with Paakti Mirchandani and Sophia
Tsai at the Trinity Church Endowment in New
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00:19:47,390 --> 00:19:51,230
York who are working on similar projects, who
are undertaking a number of different
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activities, like a series of pitch session
events where we allow our members to nominate
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and vote on managers in different categories to
present.
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Out of our database, we generally get around a
100 LPs plugging into these events out of the
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over 700 that have signed up in our membership
and we have over 1300 GPs listed in our
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database so far, which has turned from a
spreadsheet that Stephanie had created into a
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really nice searchable database from Clay, a
wonderful software firm that's kindly doing it,
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pro bono.
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00:20:23,674 --> 00:20:29,434
You're looking to amplify, diverse managers by
giving them access to a broader set of LP,
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institutional LPs?
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That's exactly right.
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Any one of us, our programs aren't gonna change
the world by ourselves, even if we turn our
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focus to actively seeking managers out, which
we don't, we don't have a mandate to do that.
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We're just one small corner of the market, so
we want to convene as many as we can and
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highlight the efforts as you rightly noted of
women and minority led funds.
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When you look at investing, is it all about
picking managers that will perform for several
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decades?
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Is there ever a rationale to picking a a
manager or a strategy for a certain mic market
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00:21:02,835 --> 00:21:05,414
cycle, call it 3 years, 5 years, 10 years?
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00:21:06,049 --> 00:21:08,929
There's definitely a rationale or strategy for
that.
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I would say it's almost a weakness if you don't
do it, if you're not able to do something like
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that, because we should be through our
research, through our connections, we should be
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able to find dislocations, some of which might
be temporary to take advantage of.
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It is challenging for smaller teams, back to
your question, generalists versus specialists,
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challenging for generalists sometimes as well
to identify those, evaluate them, get them into
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the portfolio quickly enough that the
opportunity hasn't played itself out because we
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00:21:35,609 --> 00:21:40,650
do find strength in our long term relationships
and long term focus for our portfolio, but that
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00:21:40,650 --> 00:21:45,789
doesn't lend itself as easily to taking
advantage of near term market trends.
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What would you like our listeners to know about
you, University of Rochester, or anything else
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you'd like to shine a light on?
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We've talked about IDEI.
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That would have been one of them.
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Anybody that wants to get involved, whether
it's a GP that wants to sign up easily.
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So through our website on the database curated
by Khalid and hopefully participate in some of
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our LPGP interactions that we support or
whether it's an LP that wants to have that
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resource to source some investment
opportunities for their portfolio, as well as
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network with their peers trying to figure out
the challenges related to portfolio
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construction that that presents.
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So that was certainly one area.
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And then Rochester would be the other one.
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We'd love to collaborate whether it's with
peers or new investment strategies and styles.
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00:22:27,295 --> 00:22:28,575
Thank you, Rob, for jumping on.
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Look forward to meeting in person Rochester,
New York City very soon.
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That'd be great.
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00:22:31,775 --> 00:22:32,792
Thank you very much.
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